Portugal’s 10-year bonds fell for a fourth day before European Union and International Monetary Fund officials begin two reviews next week on how the nation is meeting the terms of its financial aid program.
Italy’s 10-year government bonds declined for the first time in three days as euro-area leaders voiced concern that political instability could threaten economic reforms. Italian three-year borrowing costs rose to the most since October at an auction yesterday. German (GDBR10) bonds rose after a report showing U.S. retail sales climbed less than economists forecast boosted demand for safer assets before the Federal Reserve decides whether to slow the pace of bond purchases next week.
“Italy and Portugal are the riskiest places in Europe right now,” said Allan von Mehren, chief analyst at Danske Bank A/S (DANSKE) in Copenhagen. “There is also the tapering issue next week and people are probably cutting down on risk ahead of the meeting.”
Portuguese 10-year yields climbed 19 basis points, or 0.19 percentage point, to 7.42 percent at 4:43 p.m. London time after reaching 7.43 percent, the highest since July 15. The 4.95 percent bond maturing in October 2023 fell 1.165, or 11.65 euros per 1,000-euro ($1,328) face amount, to 82.845.
The rate on similar-maturity Italian bonds increased five basis points to 4.58 percent, while that on Spain’s 10-year securities climbed four basis points to 4.50 percent.
Portugal requested a 78-billion euro bailout package from the EU and IMF in April 2011 following a surge in debt levels and borrowing costs.
Portugal has not formally requested to change its 4 percent budget deficit target which forms part of its aid program, Finance Minister Maria Luis Albuquerque told reporters in Vilnius today. A potential adjustment of the deficit target does mean Portugal will need more time or more money, she said.
Albuquerque’s comments came after Vice Premier Paulo Portas said this week the government has argued the case for a deficit target of 4.5 percent.
Silvio Berlusconi said last month that he would bring down the Italian government should Prime Minister Enrico Letta’s Democratic Party vote to oust him from the Senate over tax fraud. The billionaire former premier softened his rhetoric a day later, saying he wasn’t issuing an ultimatum and wanted the coalition to continue. Still, allies including Renato Brunetta, chief whip of Berlusconi’s People of Liberty party in the lower house of parliament, have kept up the pressure.
“It’s essential to maintain political stability,” in Italy, European Union Economic and Monetary Affairs Commissioner Olli Rehn told reporters today in Vilnius, Lithuania, before a meeting of euro-area finance ministers.
Retail sales in the U.S. rose 0.2 percent in August, the smallest increase in four months, the Commerce Department said in Washington. The median forecast of economists surveyed by Bloomberg called for a 0.5 percent advance.
Benchmark German 10-year yields dropped three basis points to 1.97 percent after climbing as much as five basis points to 2.05 percent.
Volatility on Portuguese bonds was the highest in the euro area today, followed by those of the Netherlands and Italy, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.
Portuguese bonds returned 1.2 percent this year through yesterday, according to Bloomberg World Bond Indexes. Italian securities earned 3 percent, while those of Germany dropped 2.7 percent.
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